FAR/BAR 4/17 CONTRACT ISSUE

Imagine for a moment that you are working with a buyer. You find them a home. Buyer and seller agree on price and terms and go under contract. In this hypothetical your buyer also has to sell their current home, therefore you use the V. SALE OF BUYER’S PROPERTY addendum, which is the correct addendum to use. Your buyer inspects the property, timely applies for his or her loan, the property appraises and your buyer’s lender issues a Loan Approval which is delivered to the seller with one condition; that buyer sell their existing property. Buyer’s existing property is under contract with an ALL-CASH buyer and the inspection period on that contract has expired. The sale of buyer’s property is therefore, for the most part, a certainty. Movers have been scheduled. Everything is in order.

You then receive a letter from the seller’s attorney cancelling the current transaction and citing the buyer’s failure to provide a Loan Approval within the Loan Approval Period. You do some diligence and what appears to have occurred is that the seller received an ALL-CASH offer for $20,000.00 more than your current contract.

You are horrified. Your buyer’s plans are dashed. Can the seller do this? The answer is “yes”.

The above scenario is very real. Below is how this scenario may occur as well as a solution to prevent it from occurring:

Section 8(b)(i) of the contract reads: “Buyer shall make mortgage loan application for Financing within ___ (if left blank, then 5) days after Effective Date and use good faith and diligent effort to obtain approval of a loan meeting the Financing Terms (“Loan Approval”) and thereafter close this Contract.”

“Loan Approval which requires a condition related to the sale by Buyer of other property shall not be deemed Loan Approval for purposes of this subparagraph.” (Emphasis Added)

The underlined language above becomes problematic for a buyer who has obtained what they believe is “Loan Approval” (containing the condition requiring the sale of Buyer’s property) within the appropriate timeframe and has provided that “Loan Approval” or notice thereof to the Seller. What has been provided is not Loan Approval at all. The contract condition has not been satisfied. In that case, section 8(b)(v) of the contract states that “if Buyer fails to timely deliver either notice provided in Paragraph 8(b)(iii) or (iv), above, to Seller prior to the expiration of the Loan Approval Period, then Loan Approval shall be deemed waived, in which event this Contract will continue as if Loan Approval had been obtained, provided however, Seller may elect to terminate this Contract by delivering written notice to Buyer within 3 days after expiration of the Loan Approval Period.” (Emphasis Added)

Because what your buyer delivered to the seller does not qualify as Loan Approval, then, upon the expiration of the Loan Approval Period the Seller may elect to terminate the Contract.

SOLUTION:

Until such time as this scenario is rectified by the drafters of the FAR/BAR Contract, a simple solution is, when using the V. SALE OF BUYER’S PROPERTY addendum, add the following language to that rider: “If Paragraph 8(b) is checked in the Contract, the second sentence of Paragraph 8(b)(i) is deleted.” This insertion will allow the conditioned Loan Approval to meet the definition of Loan Approval. The condition requiring sale of buyer’s property remains unaffected pursuant to the addendum.

Scott Marcus, Association Title Service’s Director of Operations, will be LIVE with the Mortgage Chicks

Scott Marcus, Association Title Service’s Director of Operations, will be LIVE with the Mortgage Chicks at 5:30pm on Facebook to discuss changes in the FAR/BAR Contract and how to maximize your chances of having a smooth and successful closing.

FAR / BAR AS IS Residential Contract for Sale and Purchase Uses Calendar Days

The FAR / BAR AS IS Residential Contract for Sale and Purchase uses calendar days in computing time periods. This means that Saturday, Sunday and national legal holidays are included (i.e. counted) in all timeframe calculations. If however a contractual deadline falls on a Saturday, Sunday or national legal holiday, then per contract, the contractual deadline extends to the next business day at 5:00 p.m. The time period “5:00 p.m.” appears only one time in the FAR/BAR Contract and it references only the deadline extension mentioned in the previous sentence.  The question is often asked, whether the time period 5:00 p.m. serves as the deadline time period for all deadlines, not just those deadlines that fall on a Saturday, Sunday or national legal holiday. The contract is silent on that point. Therefore, if a deadline falls on a weekday which is a not a national legal holiday then the deadline extends through the entire day, (i.e., 11:59:59 p.m.) rather than through 5:00 p.m. of that day.

Agent Tip of the Week: March 8, 2017

As you may be aware, the changes to the FAR/BAR Residential Contract (both the “AS-IS as well as “NON-AS-IS” versions) will go into effect April 4, 2017.

While full redline versions are attached below:

Residential Contract For Sale And Purchase
“AS IS” Residential Contract For Sale And Purchase

The change which will have the most significant impact on your buyers and sellers is the modification to the Financing section.

Buyers will now be required to obtain a “Loan Approval” within 30 days from the Effective Date, unless otherwise stated. The newly defined term “Loan Approval” is a change from the current defined term, “Loan Commitment”. The issue with the newly defined term is that it is loosely defined in the contract as “approval of a loan meeting the Financing terms”. It is not unreasonable for one to interpret the term Loan Approval to mean “an unconditional approval”, however the contract does not define the term as such. Moreover, by virtue of the conditional language in Section 8(b)(vii), Loan Approval may be conditioned on, at a minimum, property related conditions as well as the appraisal. I anticipate that this issue will need to be clarified – and as the new version makes its rounds – it will. The takeaway here is that, regardless how the term is defined (Loan Approval or Loan Commitment) the buyer should have a candid discussion with their lender prior to the issuance of document which remotely resembles a Loan Approval. The discussion should be centered around the fact that once the Loan Approval is obtained “or deemed to have been obtained”, as the new version of the contract provides, and the buyer then fails to close, the buyer’s deposit could be at risk. Real estate agents and lenders should proceed cautiously with regard to this section of the contract and call upon real estate attorneys for counsel.

In addition to the above changes, the updated version of the contract allows a buyer to terminate the contract for inability to obtain the Loan Approval through expiration of the Loan Approval Period. This is a departure from the current version of the contract which limits a buyer’s ability to terminate the contract to a time period which is no later than 7 days prior to closing.

Agent Tip of the Week: Open Permits and Title Insurance

One of the hallmarks of Association Title Services is our Real Estate Agent Educational Enhancement Program. This program was developed for our loyal following of real estate agents who are continuously seeking to enhance their customer base through the educational enhancement offered by our attorneys. As part of our program, we present you with the “Agent Tip of the Week” and hope you find it valuable.

Open permits are not covered by title insurance. Open permits are considered matters of zoning and therefore are excluded from title insurance coverage. This exclusion is located within the fine print (jacket) of the Owner’s Title Insurance Policy. It is important, when processing a transaction, that the title insurance company order a permit search in a timely fashion to afford a buyer the ability to address the open permits with the owner of the property.

Association Title Services is managed solely by real estate attorneys who have almost a century of real estate closing and title experience. Please do not hesitate to contact us directly for more information on how you can become part of our Educational Enhancement Program.

 

Agent Tip of the Week: Residential Contracts and Special Assessments

One of the hallmarks of Association Title Services is the educational assistance we provide to our real estate agents. Below is your “Agent Tip of the Week”.

The Special Assessments referred to in Section 9(f) of the FAR / BAR AS IS Residential Contract refers to municipal assessments, not condominium or home owner association assessments. An example of a municipal assessment is where the municipality imposes a lighting improvement tax in a certain area. This is typically done through a resolution. The tax is often spread out over a number of installment payments and invoiced to the property owner in their real estate tax bill. These installment payments may be paid by either seller or assumed by buyer depending on which selection under 9f is checked.

As a 20-plus year real estate attorney, I have developed a loyal following of real estate agents who are seeking to enhance their customer base through education. Please do not hesitate to contact me directly with any questions you might have.

It’s Homestead Application Time Again in Florida

All legal Florida residents are eligible for Homestead Exemption on their homes, condominiums, co-op apartments, and certain mobile home lots if they qualify.

A Florida resident is entitled to receive Homestead Exemption on a property if, as of January 1st, that property is the resident’s permanent home. Permanent residence is determined by January 1 of each year.

The timely filing period for Homestead Exemption for 2017 ends on March 1, 2017. The absolute deadline for late filing for any 2017 exemption (if you miss the March 1 timely filing deadline) is September 18, 2017. State law (Sec. 196.011(8), Fla. Stat.) does not allow late filing for exemptions after this date, regardless of any good cause reason for missing the late filing deadline.

Below is the information you will need when filing for Homestead Exemption:

1. Proof of Ownership: In general, the recorded Deed or Co-op Proprietary Lease must be held in the name(s) of the individuals applying for Homestead. If the property is held in a trust, a copy of the trust agreement or certificate of trust is required.

2. Proof of Permanent Florida Residence — preferably dated prior to January 1 of the tax year for which you are filing — is established in the form of:

A. Florida’s Driver’s License (or — for non-drivers only — a Florida I.D. Card) is REQUIRED. You MUST also have either of the following:

1. Florida Voter’s Registration; or

2. Recorded Declaration of Domicile.

B. FOR NON-US CITIZENS, you MUST have the items listed above AND proof of permanent residency, asylum/parolee status (or other “PRUCOL” status); OR proof you are the parent of a US-born (US Citizen) minor child who resides with you.

A property with Homestead Exemption receives a reduced value for real estate property taxes. In addition, the constitutional homestead protections afford the owner protection from forced sale to meet the demands of creditors. There are however some exceptions to the constitutional homestead protections, such as parties to whom the property was pledged as collateral for a mortgage.

In Broward County, you may file online https://bcpasecure.net/homesteadonline/web/index.aspx.

In Miami-Dade County, you may file online https://www8.miamidade.gov/Apps/PA/PAOnlineTools/AutoOnlineFile/ExemptionOnlineMainMenu.aspx

Are you Subject to a FinCEN Targeting Order?

A FinCEN Targeting Order has Been Extended to Cash Purchases of Residential Property in Miami-Dade, Palm Beach and Broward Counties for $1,000,000 or more by a Legal Entity

In January of this year the Financial Crimes Enforcement Network (“FinCEN”), issued a Geographic Targeting Order (“GTO”) which requires offices and agents of various title insurance underwriters to collect and report information regarding certain purchases/sales of residential property. The GTO applies to residential properties located in Miami-Dade County with a sales price of $1,000,000 or more that closed on or after March 1, 2016 through August 27, 2016.  Additionally, the information applies to a purchase made without a bank loan where the buyer is a legal entity such as a limited liability company, corporation, partnership or similar business entity, but not a trust.

July 2016 GTO extends into Palm Beach and Broward Counties

On July 22, 2016, FinCEN issued another GTO, (“July 2016 GTO”). Starting August 28, 2016, the July 2016 GTO will include properties in Palm Beach and Broward Counties that meet the reporting criteria.

July 2016 GTO Expands Criteria to Include Personal & Business Checks

The original GTO requires reporting if the purchase price is paid in cash, a cashier’s check, a certified check, a traveler’s check, or a money order in any form. The original GTO did not require reporting if the purchase price was paid by a personal or business check. In addition to expanding the counties regulated and the timeframe through February 23, 2017, the July 2016 GTO adds personal and business checks to the list.

What does this mean to you?

Closing agents are required to collect and report information regarding real property purchases which meet ALL of the following:

  • The purchase of the residential property is located in Miami-Dade, Palm Beach or Broward County.
  • The purchase is completed on or after August 28, 2016, through February 23, 2017.
  • The purchase price is $1,000,000 or more.
  • The buyer is a legal entity, (e.g., limited liability company, corporation, partnership or similar business entity, but not a trust).
  • Purchase is made without a bank loan or other similar form of external financing (financing by a financial institution that is required to have an anti-money laundering policy).
  • Purchase price is paid, in whole or in part, with cash, cashier check, certified check, travelers check, money order in any form, personal or business check.  This does NOT include a sale where the purchase price is paid entirely by a wire transfer.

If You Are a Home-Buyer, You Will Want to Know These Important Steps

Read this resource for a comprehensive list of steps that home-buyers must work through in order to purchase their home.